TOKYO (AP) _ Stocks fell early Tuesday on disappointment that an upcoming government economic stimulus package will not include major income tax cuts. The dollar edged higher against the yen.

The 225-issue Nikkei Stock Average lost 216.88 points, or 1.29 percent, to 16,651.95 points in the first 30 minutes of trading. On Monday, the average rose 38.36 points, or 0.23 percent.

The Tokyo Stock Price Index of all issues listed on the exchange's first section was down 11.24 points, or 0.90 percent, to 1,239.25. The TOPIX closed down 4.57 points, or 0.36 percent Monday.

Koichi Kato, secretary general of the ruling Liberal Democratic Party, said Monday evening that the party has decided it will not carry out a general reduction in income tax levels in 1998.

``The drop in stocks is largely due to disappointment over the lack of large income tax cuts,'' said Kenji Karikomi, an equity manager at Daiwa Securities.

Meanwhile, there was some dollar-buying against the yen over disappointment on Kato's remarks about the lack of large tax cuts in the stimulus package, due out later this week.

The dollar bought 130.71 yen in early trading, up 0.13 yen from late Monday in Tokyo and also higher than its late New York rate of 130.47 yen.

But traders said lingering worries about possible yen-buying intervention by Japan's central bank limited the dollar's upward movement. On Friday, the Bank of Japan reportedly stepped into the foreign exchange market by purchasing yen to stem the dollar's rise.

The yield on the benchmark No. 182 10-year Japanese government bond rose to 1.500 percent from Monday's finish of 1.495 percent, driving its price down to 109.09 from 110.13.